How much money toward real estate vs. stocks?

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How much money toward real estate vs. stocks?

Ian LockwoodPro Member
Winchester, VA · Member since 2014 · 52 posts · 7 votes

Hi all! Lately I've been contemplating this question and finally figured I should toss it out to the BP community. I'm curious how everyone decides how much of their money allocated for "investing" is put toward real estate acquisitions vs. stocks/bonds. For simplicity sake let's say "stocks/bonds" represent low cost index funds (largely hands-off), with an asset allocation that makes sense for a given persons age, geared toward saving for retirement. 

I not as interested in which is better (which has been debated at length in other threads), because I think they both have their place. Let's agree that they both can have value. What I'm curious about is are people putting 100% of their "investing" funds toward real estate and forgoing any stock market investing, or splitting it 50/50, or some other percentage? Diversification is always touted as an ideal approach, right? And what is the rationale for more or less in either direction?

Using a simple real world example, the maximum 2019 Roth IRA contribution is $6,000 per year. If a couple could max this out two years in a row, they would have contributed $24,000 toward "investments." However this also means that every two years they would have enough for a down payment on an investment property. Would you say put it all toward the investment property, or go 50/50 which would mean a $24,000 down payment every four years instead? Or maybe 75% toward real estate and 25% towards stocks/bonds? How would age effect this, since getting into the stock market sooner is always better to take advantage of exponential growth and to ride-out the highs & lows?

I realize this is an over-simplification of a complex question but I'm curious how everyone approaches this. I'm sure not every BP member is 100% all-in on real estate, so those individuals must have a rule of thumb for how much of their "investment" funds go toward different types of investments - real estate, stocks, other...

I'm eager to learn how everyone approaches this. I know I have been wrestling with it for some time now. 

Coincidentally this informative @Matt Faircloth video (https://www.biggerpockets.com/renewsblog/real-estate-investing-over-stocks/) was posted today and touches on this topic, but does not get into specifics about allocating different amounts of money between real estate and stocks/bonds. Unless of course the game plan is "All In" on real estate investing, which would certainly make me rethink my approach moving forward the next few years. 

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Frank Wong
Real Estate Broker · Bay Area · Member since 2018 · 1k+ posts · 3k+ votes
7y

70% real estate, 30% cash and stock account.  All stock positions are short term 2 weeks or less.  Like Steve, I am not too excited at DOW 25,900.   To me, real estate is the easier of the two by a mile.  Real estate I have control stocks I have none other than my stops and limit orders.  RE I can do my homework correctly and I know I will get close to my ideal results. Stocks I can do my homework and still lose my shirt. 

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  • Account Closed
    Rental Property Investor · Brooklyn NY · Member since 2018 · 263 posts · 469 votes
    7y

    I like to take advantage of tax-deferred and tax-free growth accounts:

    • Max out rIRA 
    • Max out 403(b)
    • Contribute X amount to taxable account 

    Anything beyond X amount in the taxable account and cash from side business gets funneled to REI. This plan works for me now, but will likely change in the future.

    The enemy of a good plan is the search for a perfect plan.

    3Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    7y

    I put 100% of my discretionary investment funds towards REI, and 100% of my wife's investment options from her job towards the stock market...or other paper investments offered through her employer...who matches.

    1Reply
  • Mark H.
    Investor · Grapevine, TX · Member since 2014 · 88 posts · 75 votes
    7y

    In my 20's I hired a "financial adviser" who never made money for me, only for himself. It made me resent anything to do with stocks and "advisers". I also dislike the very quick fluctuation in stock prices compared to RE, and I prefer owning "brick and mortar" rather than "paper". So in my 30's I took charge, learned REI in depth, and actively invested outside my regular job. I invested about 90% in REI and 10% in stocks. I believed I could make more money in REI thanks to leverage, rigorous tax planning, market timing (2009) and BRRR style. Also, my goal is to retire early, so retirement accounts don't help my goal as much because they lock my funds for an older age, and they don't offer as many financing options and benefits for REI inside them (been there, done that). Bottom line - REI worked out really well for me. Nowadays I'm debating whether to learn stock investing and be ready for the next stock market crash, or to stick with REI. People in REI (banks, agents, contractors) look at me more seriously as a seasoned investor, but in stocks I'd be a total rookie.

    0Reply
  • Karen O.
    NYC, NY · Member since 2016 · 617 posts · 456 votes
    7y

    There is no right answer. 

    For some, 100% RE / 0% stocks is right.

    For another, 10% RE / 90% stocks is right.

    In this forum, I'd expect many will skew higher toward RE, anyone with a W-2 job will likely have some stocks.

    Personally, I'm at 10% cash, 30% RE, 60% stocks & bonds.

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  • Ian LockwoodPro Member
    OP
    Winchester, VA · Member since 2014 · 52 posts · 7 votes
    7y

    @Account Closed Thanks for sharing your allocation between cash, stocks/bonds and real estate. I figure BP members would skew toward putting more money toward real estate, but I was hoping some might have a rationale for how they decide the amounts. I'm sure people aren't picking allocations arbitrarily. 

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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    7y

    If I was in your position, I would look at this a different way. I would invest all of my money in RE...then take part of the profits and invest in paper...and the rest keep in REI income streams (cash flow).

    Paper/stocks, are a slow way to wealth...but not a bad resting place, if you invest in stable and not focused on growth.  Paper/stocks depend on decisions (control) made by others, and future events you have no control over, so I would invest profits only in them.  If I lose profit...I lost someone else's money...that they let me control.  If I lose my seed money, I actually lost my money....and my seed money is what makes me my profits.

    2Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    7y

    Either way, do buy and homework vs blind buy and hold.

    Dow 25,900 doesn't get me too excited to dump money into equities blindly.  I'm actually just waiting for a catalyst to transfer into mmkts.  Anybody remember 40 days ago?

    I play what-if at EOY. I'll do my taxes and play what-if I put this in a standard iRA or my defined benefit plan. Sometimes my IRA contributions are 60+% free. Would've gone to uncle sam anyway. Then I can convert to a roth in a down income year. Be able to pivot.

    If REI is good in your area, go all-in there. Control and opportunity to add value. Try adding value to your stocks.

    Nothing wrong with paper equities, but no control & automatic contributions = no skill.  Using buy limits and sell stops in industries you have knowledge? Better. If you have skills/knowledge use them no matter what you invest in.  

    Watch valuations in both asset classes and don't be afraid to take some chips off the table.  I am a seller at Dow 26k and trump could tweet at any moment.  Have your own exit strategies. Place limits and stops on everything or you are just one of millions of sheeple going up and down with the herd.

    2Reply
  • Matt Millard
    Lewisville, TX · Member since 2015 · 341 posts · 264 votes
    7y

    I’m 100% real estate outside of silver & crypto. I like taking part in the best & brightest syndications & being in more recession proof deals like mobile homes. It’s hard to earn 15-20% in the stock market with less tax benefits!

    0Reply
  • Mark Burlison
    Member since 2018 · 83 posts · 51 votes
    7y

    I’m just not really comfortable with the volatility at my age (60)...so my plan is to make a 12-15 per cent return on real estate, then invest in annuities(3.7) and perhaps be able to average the norm for the market 8 per cent without ever entering the stock market!! 

    0Reply
  • Karen O.
    NYC, NY · Member since 2016 · 617 posts · 456 votes
    7y

    @Ian Lockwood  Had I discovered RE investing sooner, I probably would have a higher RE allocation too.  I've spent the last few decades maxxing out job sponsored retirement plans.  All of which had some form of matching component that was generous.  

    My foray into RE is not even 5 years old.  So for a variety of reason, the learning curve has resulted in a slower transition.  

    0Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    I put all my extra into RE my wife puts her extra in her 403b because her employer matches . Re offers stability and control along with excellent tax savings . I can walk up to it and touch it . Stocks to me are uncontrollable and volatile. You can try to pattern them ..look for the support and resistance hoping to catch an ascending curve but it’s iffy because Patterns change and just some Bad news can tank a stock in one day .you just never know if your at the bottom . I work too hard for my money to gamble it and I’ve seen proof of concept play out with my real estate rentals . I can do it and it’s easy to understand so that’s where I’m parking my money .

    0Reply
  • Ryan P. Kotschedoff
    Real Estate Agent · San Luis Obispo, CA · Member since 2018 · 79 posts · 39 votes
    7y

    @Ian Lockwood

    You can always use stocks/bonds to build up down payments on a potential property instead of it just sitting in the bank. Also, I recommend putting some money into retirement/index funds over time because it takes little to no effort to do so and it will pay off in the long run.

    0Reply
  • Frank Wong
    Real Estate Broker · Bay Area · Member since 2018 · 1k+ posts · 3k+ votes
    7y

    70% real estate, 30% cash and stock account.  All stock positions are short term 2 weeks or less.  Like Steve, I am not too excited at DOW 25,900.   To me, real estate is the easier of the two by a mile.  Real estate I have control stocks I have none other than my stops and limit orders.  RE I can do my homework correctly and I know I will get close to my ideal results. Stocks I can do my homework and still lose my shirt. 

    3Reply
  • Craig Jeppesen
    Rental Property Investor · Chubbuck, ID · Member since 2018 · 532 posts · 466 votes
    7y

    There is no right percentage allocation, but I do believe you should do both. I would at least max out the $6k IRA contribution limit in stocks since you don't have a 401k. I think it depends on your disposable income, cost of real estate in your area and your overall goals.

    0Reply
  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    7y

    @Ian Lockwood

    I'm at 65% stocks and 35% real estate to diversify our assets. I maxed out (or close to it) our Roth IRAs for awhile. Then when I found my first real estate purchase, I cashed out some of the money we had put in our Roths over the years. Paid cash for our first SFR (130k) and that was the start for us on this real estate journey 4 years ago. Have since bought five more properties and loving real estate investing! Cash flowing about $2,500/month on them all.

    1Reply
  • Mark Sewell
    Investor · Houston, TX · Member since 2017 · 1k+ posts · 871 votes
    7y

    I think there is no right answer, and I think there could be an argument to move them back and forth between accounts. If you have $40K sitting in a SD IRA, waiting for a deal to come along, then you might as well invest that in some ETFs or do some short term option trades. Then move it back over when you need it to buy property.

    Of course, if you have employer contributions, then you are stuck with what you got, which is likely going to be some fund -- but they at least you got the matching.  And I think you can borrow against that too, right?  

    1Reply
  • Christina Linn
    Investor · Member since 2017 · 83 posts · 46 votes
    7y

    @Ian Lockwood I'm 35 and my husband is 38. We put over 98% into RE and I now manage our 19 rentals and laundromat FT (hiring a maintenance man next week though!) and my husband works a regular job. At the end of this year he will not work and we will be well-supported by our REI. It depends on your goals. For the last several years we have very much lived like poor people and invested everything we could into real estate other than his 401k - that's only because of the match.

    1Reply
  • Levi Rudder
    Specialist · Lubbock, TX · Member since 2018 · 32 posts · 14 votes
    7y
    Originally posted by @Ian Lockwood:

    Hi all! Lately I've been contemplating this question and finally figured I should toss it out to the BP community. I'm curious how everyone decides how much of their money allocated for "investing" is put toward real estate acquisitions vs. stocks/bonds. For simplicity sake let's say "stocks/bonds" represent low cost index funds (largely hands-off), with an asset allocation that makes sense for a given persons age, geared toward saving for retirement. 

    I personally have allocated all of my retirement funds into real estate. I am a very active investor and have made it my job to manage my investments outside of my retirement accounts, so to invest the retirement funds it's easy for me to keep them deployed into higher returning passive investments that I feel are more secure than putting the money into the stock market and getting significantly better returns compared to bonds.

    0Reply
  • Ian LockwoodPro Member
    OP
    Winchester, VA · Member since 2014 · 52 posts · 7 votes
    7y

    @Joe Villeneuve I have considered the approach you are suggesting. Use the real estate investing as motivation to continually grow so that I can eventually also invest in paper concurrently. 

    @Matt Millard Thanks for sharing! 100% real estate sounds appealing but I'm so used to hearing the script about investing in low-cost index funds and putting as much money in as possible - the sooner/younger the better.

    @Dennis M. Thanks for sharing! I can definitely relate to your exact mindset!

    @Ryan P. Kotschedoff I have thought of this approach as well but I'm admittedly still learning about different investment vehicles. My Roth IRA has been my only focus the last decade. What types of stock/bond accounts would you recommend investing in, with the goal of also growing a down payment? I know certain accounts have early withdrawal penalties and tax implications.

    @Frank Wong Thanks for sharing your specific allocations! Very interesting. How did you arrive at 70/30?

    @Craig Jeppesen I would love to be able to max out our Roth IRA's but saving for a down payment would definitely get put on the back burner. For us, at our current income level, it will definitely be a balancing act. Trying to figure out how to best walk that line. Or maybe figure out a way to do both as Ryan Kotschedoff suggested.

    @John Morgan Thanks for sharing! I'm curious how you arrived at 65/35 which is almost exactly opposite of Frank Wong. $2,500 per month is impressive, nice work!

    @Mark Sewell No employer contributions here unfortunately! I will have to learn more about Self Directed IRA's because I like the idea of investing in stocks/bonds until the right moment when the money can be pulled out for a down payment. Although I admittedly know nothing about Self Directed IRA's at this point.

    @Christina Linn 19 rentals, wow! Impressive! This definitely makes me want to put 100% into real estate. 

    0Reply
  • Account Closed
    Rental Property Investor · Central, FL · Member since 2016 · 950 posts · 821 votes
    7y

    I think it depends on what your current goal is, if you have a W2 job that has matching 401k.  

    So in my opinion if you have a W2 job that matches your 491k I would invest at a minimum to get the full matching. Anything above that should be directed to real estate if that is your objective.  Or stocks outside of your 401k if that is your current goal to access later without penalty. 

    0Reply
  • Ian LockwoodPro Member
    OP
    Winchester, VA · Member since 2014 · 52 posts · 7 votes
    7y

    @Account Closed I personally do not have a 401k. I am self-employed so I do not have the benefit of an employer match. 

    0Reply
  • Scott Beal
    Financial Advisor · Omaha, NE · Member since 2018 · 1 post · 0 votes
    7y

    @Ian Lockwood

    I love your question because I own both and like you I spend a lot of time considering my next purchase. Is it going to be RE or a stock?

    Here are a couple of ideas for doing both.

    Roth

    Take your example of funding the Roth vs RE. But in this case “season” the Roth for 5 years. Assuming you have fully funded a Roth for 5 years in a row you would have ($6000 per year x 5 years x 2 for you and a spouse) 60K plus any market gains. You can take your initial contributions out of the Roth, without penalty and it doesn’t matter if you are under 59 1/2. However if you take out the gains before you are 59 1/2, then you will owe income tax and a 10% penalty.

    Loans against your equity

    Everyone on BP knows you can take your home equity to a bank and get a loan without selling your home. You can also take your stocks to the bank to secure a loan. This is not for everyone and I am not recommending it. I am saying it can be done. It's what I do. This has allowed me to buy with cash and later refinance, while also keeping my stock portfolio in tact. This is with a non-qualified account. Meaning, you can't do this with your 401k or your IRA.

    Advisors

    I have heard Turner and Greene say that you should look for an attorney, a RE Agent, and a contractor who also owns investment RE. Makes sense right? I will go one step further, you should work with an investment advisor who also own investment RE. Find someone who has invested their time and education to become a CFP (Certified Financial Planner). If your financial advisor has a CFP and they own investment real estate, they should be better equipped to address a complex set of investments that includes stocks, mutual funds and RE.

    0Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y
    Originally posted by @Scott Beal:

    @Ian Lockwood

    I love your question because I own both and like you I spend a lot of time considering my next purchase. Is it going to be RE or a stock?

    Here are a couple of ideas for doing both.

    Roth

    Take your example of funding the Roth vs RE. But in this case “season” the Roth for 5 years. Assuming you have fully funded a Roth for 5 years in a row you would have ($6000 per year x 5 years x 2 for you and a spouse) 60K plus any market gains. You can take your initial contributions out of the Roth, without penalty and it doesn’t matter if you are under 59 1/2. However if you take out the gains before you are 59 1/2, then you will owe income tax and a 10% penalty.

    Loans against your equity

    Everyone on BP knows you can take your home equity to a bank and get a loan without selling your home. You can also take your stocks to the bank to secure a loan. This is not for everyone and I am not recommending it. I am saying it can be done. It's what I do. This has allowed me to buy with cash and later refinance, while also keeping my stock portfolio in tact. This is with a non-qualified account. Meaning, you can't do this with your 401k or your IRA.

    Advisors

    I have heard Turner and Greene say that you should look for an attorney, a RE Agent, and a contractor who also owns investment RE. Makes sense right? I will go one step further, you should work with an investment advisor who also own investment RE. Find someone who has invested their time and education to become a CFP (Certified Financial Planner). If your financial advisor has a CFP and they own investment real estate, they should be better equipped to address a complex set of investments that includes stocks, mutual funds and RE.

    Interesting . The big problems I see with “ advisors” is they never seem to recommend  or plan out the most powerful wealth building tool in America with huge tax advantages ...and that is real estate . The reason is likely three fold .A There’s no financial /commission incentive for them to do so 

    B most know little to nothing about REI

    C most of them when polled do not invest in their own advise/plan and over 60% donot have any retirement plan themselves 

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